One Of The Other Creative Financing Methods We Use To Purchase Properties Is A Short Sale Purchase

#EntrepreneurOfTheWeek – Efi Danieli, #Post4

“Short Sale” — Turning Bank Debt into Opportunity

One of the additional creative financing methods we use when purchasing properties is through Short Sale deals.

So, what exactly is a Short Sale?

A Short Sale occurs when the seller owes the bank more than the property is currently worth.
To sell the property, the seller must obtain the bank’s approval to accept less than the full amount owed — essentially, for the bank to “forgive” part of the debt.

Example:
The outstanding loan balance is $250,000, but the current market value is $200,000.
If the bank agrees to sell for $200,000, it effectively takes a $50,000 loss — that’s a Short Sale.

The Process Step-by-Step

1. Finding the Property
Short Sale properties can be found through the MLS, real estate websites like Zillow or Realtor.com, or through agents who specialize in distressed properties.
Usually, listings will note “Subject to lender approval” or “Short Sale pending approval.”

2. Initial Due Diligence
Before making an offer, you need to check:

• Property condition (Inspection) – these are often homes in poor shape.

• Legal status – ensure there are no extra liens, tax debts, or judgments.

• Market valuation – understand the true market value compared to the mortgage balance.

3. Submitting an Offer
Your offer goes to the seller — but it must also receive bank approval.
An offer typically includes:

• Proposed purchase price

• Proof of funds or pre-approval letter

• Closing timeline

• Sometimes, a cover letter explaining to the bank why your offer is realistic.

4. Lender Approval
This is the longest stage.
The bank reviews:

• Market value via an appraisal or BPO (Broker Price Opinion)

• Seller’s financials and hardship letter

• The offer itself

Approval can take 30 to 180 days.

5. Title Search
Once preliminary approval is received, conduct a Title Search via a title company to confirm there are no additional liens.
If there are, you may need to negotiate with other lienholders (for example, a second mortgage).

6. Closing
When the bank approves the sale, it closes like any regular real estate deal — through an attorney or title company.
The payment goes directly to the bank, not to the seller.

Advantages

✅ Purchase below market value — sometimes 10–30% cheaper.
✅ Properties are often in better condition than foreclosures.
✅ Potential for immediate profit after cleanup or light renovation.

Disadvantages and Risks

⚠️ Very slow process – you’re at the mercy of the bank’s bureaucracy.
⚠️ No certainty – after months of waiting, the bank can still reject your offer.
⚠️ Multiple lienholders – all must approve.
⚠️ The seller usually won’t make repairs.

Pro Tip from an Experienced Investor

When submitting a Short Sale offer, make it data-driven:
Include a CMA (Comparative Market Analysis), repair estimate (Scope of Work), and photos.
The more professional and well-documented your offer — the higher the chance the bank will approve it.